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PowerPoint_Chapter_32 - Kulper - Econ 189 Kulper 1...

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Unformatted text preview: Kulper - Econ 189 Kulper 1 Insurance Definitions • Person – individual, corporation, partnership or other legal entity • Insurance – contract in which one person, for a fee, agrees to guarantee another against a specific loss • Insurer – person who issues the insurance policy • Insured – person whose loss is the subject of the insurance policy Kulper - Econ 189 Kulper 2 More Insurance Definitions • Owner – person who enters into the insurance contract and pays the premiums • Premium – consideration that the owner pays under the policy • Beneficiary – person who receives the proceeds from the insurance policy Kulper - Econ 189 Kulper 3 Insurance Contract • An insurance policy must meet all the common law requirements for a contract. • Offer and Acceptance – The purchase of a policy makes an offer by delivering an application and a premium to the insurer. – It can be accepted by oral notice, by written notice, or by delivery of the policy. – It also has a fourth option­a written binder, which is a temporary acceptance. Kulper - Econ 189 Kulper 4 Insurable Interest • An insurance contract is not valid unless the owner has an insurable interest in the subject matter of the policy. – This means you must have some financial stake in the subject of the insurance policy. – The insurable interest must exist at the time of loss, and cannot be for more than the amount of loss. Kulper - Econ 189 Kulper 5 • Insurers have the right to void a policy if, during the application process, the insured makes a material misstatement or conceals a material fact. • Insurance policies often contain a covenant of good faith and fair dealing, either explicitly or by implication. – Insurance companies cannot fraudulently induce someone to buy a policy, refuse to pay a valid claim or refuse to accept a reasonable settlement offer. Kulper - Econ 189 Kulper Rights and Duties 6 Property Insurance • Property insurance (also known as casualty insurance) covers physical damage to real estate, personal property or inventory from causes such as fire, smoke, lightning, wind, riot, vandalism or theft. Kulper - Econ 189 Kulper 7 Life Insurance • Term Insurance – simple, cheap; covers a particular time period • Whole Life Insurance (straight life) – more expensive, but forces policyholder to save; part of premium goes into a savings, giving the policy cash value. • Universal Life – a hybrid of term and whole life; premiums may be adjusted some. Kulper - Econ 189 Kulper 8 Annuities • Annuities are the reverse of life insurance­they make payments until death whereas life insurance pays after death. – Owner makes a lump sum payment to an insurance company in return for a guaranteed fixed income for life. – Deferred annuities work the same way, except they don’t begin immediately. The payments begin at a designated time in the future. Kulper - Econ 189 Kulper 9 Health Insurance • In a pay for service plan, the insurer pays for almost any treatment ordered by almost any doctor. • In managed care plans, patient and doctor choice is limited, in order to limit costs. – HMOs (Health Maintenance Organizations) are a type of managed care plan. Kulper - Econ 189 Kulper 10 • Disability insurance replaces the insured’s income if he becomes unable to work because of illness or injury. – The average person is 7 times more likely to be disabled for at least 90 days than to die before the age of 65. – Half of all mortgage foreclosures are due to an owner’s disability (although perhaps not in the past two years!) Disability Insurance Kulper - Econ 189 Kulper 11 Liability Insurance • The purpose of liability insurance is to reimburse the insured for any liability she incurs by (accidentally) harming someone else. • Liability insurance covers: – – – – Injuries sustained on the insured’s property Injuries to another’s property caused by the insured Professional malpractice Product liability Kulper - Econ 189 Kulper 12 • Collision – pays to repair or replace a car • • • Automobile Insurance damaged in an accident. Comprehensive – covers fire, theft and vandalism. Liability – covers harm to other people or other property (usually required). Uninsured Motorist – covers the insured and all passengers who are injured by another driver who does not have insurance. Kulper - Econ 189 Kulper 13 ...
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